Improving cost-effectiveness of product designs by cross-functional collaboration
Abstract
Procurement management is a widely recognized strategic management tool used to keep the cost of production of a company under control. Design-to-cost process is a process that is capable of improving cost effectiveness of the process of product development. The DTC process essentially involves cross-functional collaboration within the organization. The objective of this dissertation is to provide a cross-functional collaboration driven DTC framework for the case company which is an information technology firm.
The proposed dissertation is single qualitative case study in which adductive approach will be adapted to the analysis of the results. The theoretical perspective of the design-to-cost process has been taken as the starting point in constructing the DTC framework. The important factors in the construction of DTC framework are considered on the basis of a literature review. The author used workshop studies and semi-structured interviews to further develop the proposed DTC framework. In order to improve manufacturing cost effectiveness, the research primarily focused on the first phase of the DTC framework by cross-functional collaboration where a group of people with different functional expertise work together to achieve a common goal. For the case company the common goal is improving cost effectiveness.
The thesis presents a framework of product development utilizing cross-functional collaboration where benefits from supplier capabilities and customer requirements are incorporated in to the process. The company’s procurement management plays a very crucial role in achieving the desired goal from cross-functional collaboration. Increased knowledge of product development is a direct outcome of a DTC framework which is key to better organizational functions and can be used for better understanding of cross-functional targets. The study shows how DTC can be made an effective framework with focus on the cross-functional collaboration in the context of globalization and outsourcing.
ABSTRACT P2
INTRODUCTION P5
CROSS-FUNCTIONAL COLLABORATION P7
LITERATURE REVIEW P7
RESEARCH METHODOLOGY P9
FORESEEN LIMITATIONS P11
FUTURE ESEARCH P13
Introduction
Today’s competitive business environment in the context of globalization, outsourcing and increased customer expectations poses a challenge to the software manufacturing company. The growing importance of innovative and efficient supplier continuously puts the procurement function of the company under scrutiny. With the changing global business landscape, the nature of procurement function is gradually changing from merely buying goods and services to strategic management tool. Procurement function encompasses a number of management functions namely category management, supplier relationship management, contracts management and payment management. Procurement function is intricately related to supply chain management and as such is crucial in maintaining a sustaining and efficient operation. Procurement function maintains the crucial link between the internal and external parties of the company.
The cost of procuring goods and services is a significant part of the total cost that the company bears. Thus the company’s competitive edge and cost effectiveness greatly depends upon the resources acquired from outside. The procurement function not only contributes to the cost effectiveness but also to innovativeness and value creation.
The procurement function has three important roles in the operation of the company, namely rationalization, structure, and development. Rationalization impacts the competitiveness of the company by purchasing at minimum cost and thus keeping the cost of production low. The structure role deals with the company’s position in the supplier network structure. The development role of procurement deals with developing supplier and supplier network (McCue, 2000). These three roles work together towards successful integration of procurement and product development process. In view of the cut throat competition in the market it is imperative that companies manufacture high quality products at low cost to keep competitive edge. Cost effectiveness could be achieved if cost reduction is effected at the design stage rather than in the manufacturing stage. More over if the product development costs can be pre-determined then modification could be done at the design stage so that ultimate cost reduction is affected.
Research Questions
The focus of the thesis is developing a DTC framework with the objective of improving cost effectiveness and cross-functional network at Unisys Global Services. A cost saving project in the procurement division has been launched by the company. The design-to-cost process is a means to reach the cost saving target. The DTC emphasizes on product redesign rather than developing new product (Gummesson, 2000). The aim of the research is to develop a DTC framework with cross-functional collaboration for product development in a software development business. Thus the following three research questions can be raised;
i. What are the different phases of DTC framework and what are the roles of different actors in developing the DTC framework?
ii. How to improve the collaboration between procurement, internal functions, suppliers, and customers?
iii. How the initiatives of product development efforts could be identified?
In the thesis the author will strive to answer the questions by connecting theoretical information and the real factors of Unisys Global Services. Answers to the questions will determine the objectives of the study. Then theoretical aim of the research is to study the relationship between cost effectiveness and cross-functional collaboration. From the case company’s perspective, the objective is to achieve the DTC targets by understanding and integrating the company’s procurement function, other internal functions and cross-functional collaboration.
In developing a DTC framework a number of important aspects are to be taken in to consideration. Those aspects that significantly impact the total cost need to be identified rather than focusing on less important small details. The developed DTC framework must be capable of being used in the company’s business line. The developed framework must be suitable for the employees of Unisys Global Services to work with. The different functional heads need to give valued opinions that ought to be incorporated into the model.
Cross-Functional Collaboration
Cross-functional collaboration is at the core of DTC framework development. Cross-functional collaboration can be defined as the interaction and collaboration between procurement and supply management, production, product development, and marketing. From the perspective of Unisys Global Services, the cross-functional collaboration can be defined as the interaction and collaboration between procurement and other internal functions of Unisys Global Services. Cross-functional collaboration is also important in diminishing the silo effect i. e. lack of flow of information between different divisions of Unisys global Services (Green, 1975).
Literature Review
Then procurement function is the interface between the external suppliers and internal customers. In many companies’ procurement function is typically limited to purchasing activities rather than influencing cost effectiveness. The situational factors and the characteristics of the business determine the structure and location of procurement. Researchers have categorized seven procurement models; centralized procurement, decentralize procurement, area planner concepts, supply manager concepts, commodity teams, and logistics pipeline approach. Researchers Johnson and Leenders have classified three major procurement models; centralized, decentralized and hybrid. There is another classification of procurement organization that differentiates between single unit company and multi-unit company. In this thesis the organization structure of a multi-unit company is considered taking into account the nature of the case company. Van Weele emphasizes on the extent to which the procurement function is decentralized in a multi-unit company. According to Van Weele there can be four different structures of procurement in a multi-unit company namely decentralized, centralized, hybrid and cross-functional sourcing teams. In this thesis decentralized, centralized, and hybrid model and different team structures of the models are considered (Diefenbach, 2009). A completely centralize procurement system is recommended by McCue and Pitter wherein all the procurement decisions and the responsibility of ensuring integrity are contained. They are of the view that such model ensures internal control as there are coordination and communication from top to bottom. They also state that law and regulation also fix responsibility of action of individuals in the model. According to Parikh and Joshi the degree of centralization depends upon nature of hierarchy in the organization. The employees get more decision making power over small purchase with decreased centralization argue Parikh and Joshi. Lendeers, Johnson and Flynn are of the view that centralization is not applicable where the procurement staff are geographically located as centralization of procurement means centralization of purchasing decision. Van Weele opined that centralized procurement suffers from one limitation that management of the business units has limited responsibilities for procurement decisions.
Research Methodology
The research methodology adapted by the author consists of two parts; the first part is qualitative interviews and the second part is workshop studies. Semi-structured interviews are more fruitful as such interviews allow the interviewees to move into areas that are not pre-decided by the interviewer but are relevant for the research. This also allows new but relevant inputs enter into the research process. Hence semi-structured interviews are adopted in this thesis.
The interview would be structured with focus on cross-functional collaboration. Hence four functional departments; research & development, procurement, production and engineering departments will be chosen for the two-part interview process. Taking into account the different background of the employees, three topics; procurement, product development, and production are chosen to make the interview questionnaire. The product development questionnaire is applicable to research and development and engineering functions as the idea and understanding of DTC development are identical. The questionnaire is set with focus on background of the employees and how procurement function impacts production, supplier management, DTC development process and product development. The interview questionnaire is to be based on the information acquired from informal conversation with the employees of Unisys Global Services and the literature review (Van Weele, 2010). The interviewees are to be chosen from senior managers and directors of different functions who have in-depth knowledge of their respective departments and DTC development. The interview will be audio recorded and electronically saved and protected. The information on self-memos are also o be electronically saved and protected. Categorizing means determining the categories and relating each category to considerable amount of data. The data acquired during interview will be will be categorized and put into computer spreadsheet. Both inductive and deductive logics are to be applied in analyzing the data. The categorization is based on the literature review.
In this part the present condition of cross-functional collaboration and challenges faced by cross-functional collaborative function are studied. The existing level of understanding between different functional departments is the basis of determining requirements of DTC framework development process. Cross-functional collaboration can definitely do things in better way which is also evident from the discussion of the procurement director who lays emphasis on increase in interaction between different functions. More attention needs to be paid on the interface of the company that is the procurement department and flow of information between the relevant departments. The formal discussion with some key personnel of the different functions it can be said that the information provided by them are coherent and will lead to convergent validity.
Most of the procurement department employees are of the view that interaction of between the procurement department and the suppliers is important for the product development. This holds well only when the development of the company’s technology is not the focus of the development of the process. Some of the procurement personnel also opined that there should be collaboration between procurement and product development. Another important thing that emerged during discussion with the employees is that different functions view the objective of DTC development from divergent perspectives. Procurement director has stated that the production engineers are preoccupied with customer needs and cannot devote much time on developing DTC framework.
Similarly, product development manager expresses that the procurement department chiefly concentrate on the customer projects and DTC projects are not their priority. The manager says that the procurement department is more interested in buying activities than development activities. The dissent between procurement department and product development department may influence their interviews. By introducing communication and transparency between these two functions can help in diminishing the dissent between the two departments. It is significantly important that the departments make self-assessment and take corrective measures to overcome the shortcomings (Diefenbach, 2009). The product department personnel admitted the existence of silo effect within the organization.
However, all the functional departments agreed that there is to be collective positioning of the common target for all the functions. They are also of the view that the target should be transparent and a common process be chosen to construct the target. When the target is correctly positioned it becomes easier to execute tasks to achieve the goal and the situation becomes clear to all. The procurement department, product development department and the production department subscribe to the same view. They all agree that all the functions will have shared targets.
Foreseen Limitations
The thesis faces the limitation that stems from validity and reliability of the DTC framework proposed. Validity means integration of theory and the process from which the researcher continuously assesses the assumptions with changing results and reset the theory and model and reappraising the limitations originally set. Quality and stability of data are very important for validation of the thesis. Ell ram opined that the case study should be so designed so as that internal and external validity and reliability can be established. Riege subscribes to the same idea of Ell ram but states that there cannot be any single set of validity and reliability tests in the case study researches (Parikh et al 2005). Thus the research methods take into account internal and external validity and reliability. Validity depends upon establishing proper operational measures of the theory being studied. Theoretically the thesis predicts a DTC framework by which products are developed with predetermined descriptions though cross-functional collaboration. The validity of the thesis can be established as the cost effectiveness of the DTC framework through cross-functional collaboration could be established by empirical results (Riege, 2003). Data will be collected from multiple sources and will thus eliminate researcher bias. This will enhance construct validity. Internal validity means construct validity bay taking into account alternative explanations and correct inferences from convergent data. Internal validity is important in such case studies where the thesis tries to establish that the output is a function of independent variable. The DTC workshop studies gives opportunity to collect data from multiple sources. Data are collected directly from customers and suppliers reflecting customer requirements and supplier capacities. This will also increase internal validity of the methodology.
External validity refers to the accuracy and generalizability of the results. Lack of generalizability constraints validity of the methodology. External validity is also limited by using data from a single case study. Data from multiple case studies would definitely increase external validity. Lee and Baskerville opined that a theory van never be generalized to an environment unless the theory is empirically tested in the environment. Thus the results of the thesis cannot be expected to be generalized to all possible environments.
Gummesson states that reliability is established when more than one researchers researching independently study the same theory with similar assumptions and reach at same conclusion. The thesis adopts semi-structured interview method which has its own limitations. Diefenbach argues that semi-structured interview has flaws as the selection of interviewees is not done objectively and the place of interview influences unconscious bias of the interviewees. So the collected from them may not be fully reliable. The sample size of the data is not very big and hence there is possibility of bias in the data collected. However, Diefenbach states that increase in the number of interviewees may not increase validity of the methodology.
According to Green nominal groups are more useful than inter-active group for case study research, as the effectiveness of the group can be assessed by seeing the quantity of innovative ideas as well as perceived group satisfaction. Inter-active group is criticized on the ground that group pressure and influence of the more knowledgeable members of the group reduce performance of inter-active groups. Rietzschel, Nijstad and Stroebe, however, opine that collection of huge number of innovative ideas cannot be the goal of a group discussion. They state that highly productive group discussion may not lead to better solutions. They also argue that group members need to be more efficient in all the stages of the development process rather than be function-wise highly productive. The workshop studies are made on inter-active groups. The ideas that could not be further developed were immediately discarded from the conversation theme. DTC workshop would prove a valuable tool for collecting innovative ideas from the Unisys personnel, suppliers and customers.
Future Research
The validity of the thesis and improvement of the DTC frame work are subject to future research on the phenomenon. There can be more complex cross-functional collaboration and DTC process. It is also to be mentioned that inputs from suppliers and end customers may also have bias. Further research is also needed to establish functional relationship between cross-functional collaboration, capabilities of suppliers and customers.
References
Diefenbach, T., 2009. Are case studies more than sophisticated storytelling? Methodological problems of qualitative empirical research mainly based on semi-structured interviews. Quality and Quantity, 43, pp.875–894.
Ell ram, L.M., 2006. The Implementation of Target Costing in the United States: Theory Versus Practice. Journal of Supply Chain Management, 42(1), pp.13–26.
Green, T.B., 1975. An Empirical Analysis of Nominal and Interacting Groups. Academy of Management Journal, 18, pp.63–73.
Gummesson, E., 2000. Qualitative Methods in Management Research 2nd ed., Sage Publications.
McCue, C. & Pitzer, J., 2000. Centralized vs. decentralized purchasing: Current trends in governmental procurement practices. Journal of Public Budgeting, Accounting & Financial Management, pp.400–420.
Parikh, M. a. & Joshi, K., 2005. Purchasing process transformation: restructuring for small purchases. International Journal of Operations & Production Management, 25(11), pp.1042–1061.
Riege, A.M., 2003. Validity and reliability tests in case study research: a literature review with “hands-on” applications for each research phase. Qualitative Market Research: An International Journal, 6, pp.75–86.
Rietzschel, E.F., Nijstad, B. a. & Stroebe, W., 2006. Productivity is not enough: A comparison of interactive and nominal brainstorming groups on idea generation and selection. Journal of Experimental Social Psychology, 42, pp.244–251.
Van Weele, A.J., 2010. Purchasing and supply chain management 5th ed., Cengage Learning EMEA.
